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BPO Journal

Sunday, February 05, 2006

Offshoring and Open Source

Deloitte, in the 2006 edition of its predictions for the global technology sector, points out that offshoring will evolve from an option to obligation, and that open source will move mainstream:
...Technology companies should consider taking offshoring seriously, if they are not already doing so. The cost advantage derived from exploiting low labor costs and overheads in emerging markets will likely evolve from being a bonus to a necessity...

...2006 will likely see open source ramp up its challenge to the established software business model, impacting both established software providers as well as end-users. 2006 may well see open-source challenge long-established and credible products and services in CRM, ERP and other enterprise software infrastructure functions, in addition to its growing strength in server management, operating systems and office productivity software...

It's interesting how these two trends share a mutually reinforcing relationship and are essentially two faces of the same coin. First, they are both, enabled by increased technological sophistication, which has amplified the cognitive and social capabilities of the population, and the architecture of the Internet, which has enabled networking of these capabilities. Increased networking facilitates a participatory economy and increased supply and decreased acquisition costs of pertinent capabilities drives down the compensation of the population.

In addition to increased connectivity, both these trends are driven by low costs of such connectivity, including capital and information access. Over the past few years, there has been a significant decline in the price of computing, storage, and communications technologies, for a given level of performance. Enabled by inexpensive computing technologies, information search and creation capabilities have rapidly matured to become more sophisticated and pervasive. Sophisticated search technologies have helped to address the classic tension between recall and precision, not by increasing the volume of information retrieved but by improving the quality of retrieved information through significant mitigation of unrelated and unusable information sources. And all of these have been ably supported by the spread of broadband access. So, open source as well as offshore teams are rapidly scalable and can produce value at relatively lower costs of ownership.

Finally, they both require of the project high modularity and low complexity which enables disaggregation of project components. The characteristic of software projects that allows them to be modified in distributed teams is also one that drives their design and development across geographical and temporal boundaries.

The mutually reinforcing relationship is evidenced by what Irving Wladawsky calls the "outside-in" paradigm. This emphasizes that businesses, governments and other institutions embrace open standards internally, driving down the transaction costs of communicating and collaborating with service providers. Reduced integration costs increase adoption of offshoring. In an allied fashion, as offshoring increases, the greater the need for the supporting technology and infrastructure, and the greater the levels of open-source development.

It would be interesting to dwell on how these two trends work as substitutes instead of complements. That's the subject of another post.

Meanwhile, let's just get used to global integration. It's inevitable.

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